Budget: Recovery in motion, growth rates in question
KUCHING: The Budget 2022 appears to remain tightly focused on economic recovery efforts, but Malaysian Rating Corporation Bhd (MARC) cautions of growing debt and narrowing tax base as possible hindrances to groth.
Given the unprecedented borrowings to fund crisis spending, MARC in a statement yesterday said it does not foresee the debt ceiling returning to the pre-pandemic level of 55 per cent of GDP following the expiry of Temporary Measures for Government Financing (Coronavirus Disease 2019) by end-2022.
“We believe the Ministry of Finance will either use the proposed Fiscal Responsibility Act or amend existing laws through administrative means to keep the debt ceiling at the current 65 per cent.
“This would, in other words, allow for the subsequent positioning of the Covid-19 Fund as part of statutory debt under the national budget.
“If Malaysia’s narrow tax base continues to be an issue, we foresee the nation’s fiscal position deteriorating further and faster,” it opined.
It pointed out that the Covid19 Fund is a dedicated trust fund where the proceeds of borrowings needed to finance the additional expenditure on pandemic relief measures are channelled.
“If the RM110 billion of the Covid-19 Fund ceiling is fully drawn down, it could add 6.7 percentage points to the federal government’s total direct debt in 2022 (2020: 62.1 per cent of GDP).
“Since the Covid-19 Fund is not meant to fund economic expansion, it will be a burden that will be borne largely by future generations. As such, this is a concern we should all not lose sight of,” it cautioned.
To sustain growth, it believed that Malaysia must, first and foremost, reposition itself as an attractive investment destination vis-à-vis its regional peers.
“However, technology adoption and skills shortage continue to be major concerns. It is important to note that Budget 2022 assumes a business-as-usual scenario for international trade.
“Given the present crisis, continuous improvements in net exports in supporting Malaysia’s overall economic growth is paramount.
“Thus, it is not surprising that the government raised the Covid-19 Fund ceiling to RM110 billion from RM65 billion to fund its economic stimulus packages and recovery plan.
“This is crucial as the number of Malaysians that have become economically and socially vulnerable will likely remain elevated. For instance, the unemployment rate remains high.
“The government, however, expects the unemployment rate to improve to 4.0 per cent in 2022 with the help of, for example, the JaminKerja programme,” it said.
We believe the Ministry of Finance will either use the proposed Fiscal Responsibility Act or amend existing laws through administrative means to keep the debt ceiling at the current 65 per cent.
MARC